Standard Documents
Banks require certain standard documents to make loans:
- Business plan (only with certain businesses will the bank need this from you)
- Copies of corporate tax returns (if applicable)
- Copies of personal tax returns
- Financial statements of the business entity
- Personal financial statements
The bank is trying to extract certain facts from the documents. One of the primary concerns is your ability to repay the loan. The bank tries to assess whether there is an adequate cash flow to meet the periodic payments on the loan you are requesting. The secondary concern is the amount of collateral you have to back up the loan.
Collateral
Your collateral protects the bank in the event that you should default on the loan. In all of your financial and tax reporting, it is important that the entire income you are receiving is recorded. It is also important to reflect all of the assets which this income purchases.
The bank extracts these elements from your financial statements and tax returns and uses the information as its basis to make or deny a loan. If you have substantially understated either your assets or your income, there is a good possibility that the bank will not be able to grant you a loan when the necessity arises.